Public Service Enterprise Group. NYC Investor Meeting February 14, 2007

Transcription

1 Public Service Enterprise Group NYC Investor Meeting February 14, 2007

2 Forward-Looking Statement The statements contained in this communication about our and our subsidiaries future performance, including, without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of Although we believe that our expectations are based on information currently available and on reasonable assumptions, we can give no assurance they will be achieved. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made herein. A discussion of some of these risks and uncertainties is contained in our Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K filed with the Securities and Exchange Commission (SEC), and available on our website: These documents address in further detail our business, industry issues and other factors that could cause actual results to differ materially from those indicated in this communication. In addition, any forwardlooking statements included herein represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if our estimates change, unless otherwise required by applicable securities laws. 1

3 We have made steady progress across a variety of areas. Operations PSE&G consistently demonstrates top reliability performance Significant improvement in nuclear operations Regulatory PSE&G settlement demonstrates return to constructive environment Environmental achieved NJ coal solution Energy Markets Power benefiting from higher prices and lower risk through forward hedges Utility customers benefit from staggered BGS another auction complete Financial International reduced exposure, improved stability Improving cash flows and credit measures Strong earnings growth in 2007 and 2008 Our objective is to build on these results to make a strong company even stronger. 2

4 Much has been accomplished since the termination of the merger September October November December January /14 Merger Termination Announced Regulatory 11/9 PSE&G Rate Settlements 11/30- PSEG Power Consent Decree Operations Financial / Asset Rationalization 11/16 PSE&G named America s Most Reliable Electric Utility 12/20 PSEG resumes direct management of Nuclear stations and Exelon s senior management team joins PSEG. 1/31 - Operating Earnings at upper end of guidance; Confirmed strong outlook; Improved Balance Sheet 12/31 Power completes 96% 2006 capacity factor 1/16 Dividend Increase 1/2 Sale of Lawrenceburg announced Management 9/25 CEO Succession Announced 12/7 New Senior Team Announced Organizational Design & Staffing in progress 3

5 4Q 2006 Results - Earnings Variance 1.00 $0.94 (.01) (.05) (.20) PSE&G Power 0.75 O&M & Other $.02 Re-contracting & Higher Margins $ $0.69 $/Share Transmission $.02 Demand $.02 Effective Tax Rate $.02 Weather ($.06) Expiration of Depreciation Credit ($.03) Depreciation, Interest & Other $.06 O&M $.03 Nuclear Operations $.02 BGSS ($.11) Turbine Impairment ($.10) New Assets ($.06) Holdings Lower taxes $.08 Lower Interest & Other $.04 Gain on sale of Seminole lease in 2005 ($.18) TIE MTM & Operations ($.08) Enterprise Interest Savings $.01 NDT ($.05) MTM ($.05) RGE Sale ($.04) Q 2005 Operating Earnings* Shares O/S ($.01) Turboven Impairment ($.02) 4Q 2006 Operating Earnings** *Excludes ($.02) Merger Costs, Cumulative Effect of an Accounting Change ($.07) and ($.02) Discontinued Operations **Excludes ($.87) Discontinued Operations 4

6 2006 Results - Earnings Variance 4.00 $ (.38) Holdings.03 $3.71 $/Share Operating Earnings* Power Re-contracting & Higher Margins $.84 Nuclear Operations $.20 Depreciation, Interest & Other $.04 New Assets ($.23) BGSS ($.22) NDT ($.13) Turbine Impairment ($.10) Shares O/S ($.07) Environmental Reserve ($.06) O&M ($.06) Texas Ops $.21, including MTM of $.13 Lower Interest & Taxes $ UAL Writeoff $.05 FX Gains/Losses $.03 Prior Year Gains: Eagle Point, Seminole, SEGS, MPC ($.31) RGE Sale ($.06) Turboven Impairment ($.02) PSE&G Transmission $.06 Other $.01 Weather ($.19) Expiration of Depreciation Credit ($.15) O&M ($.04) Depr./Amort. ($.04) Shares O/S ($.03) Enterprise Interest Savings $ Operating Earnings** *Excludes ($.14) Merger Costs, Cumulative Effect of an Accounting Change ($.07) and ($.85) Discontinued Operations **Excludes ($.03) Merger Costs, ($.70) Loss on Sale of RGE and ($.05) Discontinued Operations 5

7 PSEG 2007 Earnings Outlook & Drivers $ $5.00 Excess of 10% Growth $ Operating Earnings: $938M* Forward Hedging Re-contracting -PJM/NE Capacity Market Design Gas Rate Case Electric Financial Review Weather Texas Asset Sales New Accounting Standard 2006 EPS Power PSE&G Holdings 2007 Guidance 2008 ($ millions) 2007 Forecast Operating Earnings Ranges Increase/(Decrease) vs Operating Earnings $770 - $850 $330 - $350 $130 - $145 $ $1295 $255 - $335 $68 - $88 ($97) ($82) $232 - $357 *Excludes Loss on Sale of RGE of $178M ($.70 per share), Merger Costs of $8M ($.03 per share) and Discontinued Operations of $13M ($.05 per share) 6

8 PSE&G

9 PSE&G Overview 2.1 M electric customers 1.7 M gas customers Rate Base (As of December 31, 2006) Electric Transmission $0.7B 2,600 sq miles in service territory Electric Distribution $3.2B Gas Distribution $2.1B 8

10 Fair outcomes on recent gas and electric cases will help ensure Settlement agreement with BPU staff, Public Advocate, and other parties Gas Base Rate case provides for $79M of gas margin $40M increase in rates $39M decrease in non-cash expenses Electric Distribution financial review provides $47M of additional revenues Base rates remain effective until November 2009 New Jersey regulatory climate providing a fair return to investors Opportunity to earn a ROE of 10% our continued ability to provide safe, reliable service to customers and fair returns to shareholders. 9

11 Rate relief and normal weather $400 $20M - $30M $330M to $350M $300 $262M $20M - $25M $30M - $40M ($ millions) $200 $100 $ Operating Earnings* Gas Rate Relief Electric Financial Review Weather provide opportunity to earn allowed returns. *Excludes $1M of Merger Costs 2007 Guidance 10

12 Looking Forward PSE&G Continues to invest in its assets for the future Distribution System Reinforcements Transmission Investments Customer Service Is committed to meeting customer needs and expectations Is supporting NJ s Energy Master Plan process, which may create opportunities for additional investments Advanced Metering, Solar Installations/other renewables and Energy Efficiency Endeavors to maintain constructive regulatory relations regarding traditional utility matters 11

13 PSEG Power

14 PSEG Power Overview Diverse asset mix mitigates risk and provides strong returns 13,600 * MW of nuclear, coal, gas, oil and hydro facilities Low-cost portfolio Strong cash generator Regional focus with demonstrated BGS success Assets favorably located Many units east of PJM constraint Southern NEPOOL/Connecticut constraint Near customers/load centers Integrated generation and portfolio management optimizes assetbased revenues Fuel Diversity 2007* Gas Oil (MWs) 8 % 47 % 26 % Nuclear 18 % Coal Energy Produced (MWhrs) Total MWhrs: 53,617 27% 55% 16% Nuclear Oil 1% Pumped Storage 1% Gas Pumped Storage 1% Coal * After sale of Lawrenceberg 13

15 Strong Nuclear Operations 82% 77% Capacity Factors 90% 89% 96% 96% Total Fleet: 3,494 MW Strong operational performance Capacity factors: Year -end ~96% Summer ~100% Outage management NJ Fleet: 2,382MW Site records achieved, including most recent 21 day refueling outage at Salem 2 PSEG MW Owned Hope Creek* Salem 1 & 2 Peach Bottom 2 & 3 1,059MW* 1,323MW 1,112MW Ownership PSEG Owned Jointly Owned Jointly Owned Nuclear Operating Services Agreement (NOSA) PSEG to resume direct management of Salem and Hope Creek Operations PSEG Operated (NOSA) PSEG Operated (NOSA) Exelon Operated Exelon s senior management team joins PSEG *Uprate of 127MW scheduled for Fall

16 Strong Fossil Operations round out a diverse portfolio 25,000 20,000 15,000 Total Fossil Output (Gwh) A Diverse 10,000 MW Fleet 2,400 MW coal 3,200 MW combined cycle 4,400 MW peaking and other 10,000 5, Coal Combined Cycle Peaking & Other Strong Performance Continued growth in output Improved fleet performance Achieved resolution regarding Hudson / Mercer in which over 80% of fleet output is from low cost coal and nuclear facilities. 15

17 Strengthening of capacity market design New England Forward Capacity Market (FCM) began 12/1/06 Transition period prices have been established Grows from $37/kw-yr to $49/kw-yr through 2010 First auction scheduled in 2008 for June 2010 delivery PJM FERC Approved 12/22/06 Locational pricing 4 zones initally, 23 in 2010 Anticipated implementation 6/1/07 Auction schedule: April July October January 2008 PJM PSEG Power Total Generating Capacity NY Total Capacity 13,600MW (1,500MW under RMR) PJM New York New England NE provides meaningful market signals, and enhances margin for Power s generating fleet. 16

18 PJM s Reliability Pricing Model $60 Capacity Prices RPM reflects a change in market design $/Kw-yr $40 $20 Feb 2007 Sept 2006 Range of recent prices for year - More structured, forwardlooking, transparent pricing model - Gives prospective investors in new generating facilities more clarity on future value of capacity $ The 1st RPM-year spans June 2007 through May 2008, and will cover similar one year (BGS) intervals thereafter. Recent market activity has shown considerable price increases for the 2007/2008 year. - Sends pricing signal to encourage expansion of capacity where needed for future market demands Capacity revenues, driven by RPM, provide a meaningful increase in Power s margin - $100 - $150 million for and is anticipated to increase in future years due to full year PJM impact and as more capacity comes off existing contracts 17

19 New Jersey BGS Auction Structure 20,000 Total NJ BGS Load (MW) 16,000 12,000 8,000 4, FP Auction 1 Year 170 Tranches 2003 FP Auction 10 months 104 Tranches 2004 FP Auction - 1 Yr. 50 Tranches 2003 FP Auction 34 months 51 Tranches 2004 FP Auction - 3 Years 51 Tranches 2005 FP Auction Load 50 Tranches 2006 FP Auction Load 54 Tranches 2007 FP Auction Load (projected) The BGS structure in New Jersey successfully mitigates risk for both suppliers and for customers. 18

20 Market Viewpoint - BGS Auction Results Increase in Full Requirements Component Due to: Increased Congestion (East/West Basis) Increase in Capacity Markets/RPM Volatility in Market Increases Risk Premium $65.91 $55.59 $55.05 ~ $21 ~ $21 ~ $18 $ ~ $32 $98.88 ~ $41 Full Requirements Capacity Load shape Transmission Congestion Ancillary services Risk premium $33 - $34 $36 - $37 $44 - $46 $67 - $70 $58-$60 Round the Clock PJM West Forward Energy Price 2003 Auction 2004 Auction 2005 Auction 2006 Auction 2007 Auction Power has been a successful participant in each BGS auction. 19

21 The year over year improvements $1,000 $50M - $80M $5M - $15M $770M to $850M Power drives 2008 earnings guidance in excess of 10% over 2007 Full year of capacity Recontracting of 2005 BGS $750 $200M - $240M $ million $500 $515M $ Energy Capacity Other drive growth in PSEG s 2007 earnings guidance with further improvements in

22 Looking Forward PSEG Power Transitions its New Jersey nuclear plants to independent operations Moves forward to enhance environmental profile through Consent Decree compliance Anticipates energy markets to provide attractive growth Energy hedges roll with increased margin Capacity markets increasing RPM auctions will provide visibility Positions balance sheet for growth 21

23 PSEG Energy Holdings

24 PSEG Energy Holdings Overview Two businesses with redirected strategy to maximize value of existing investments Balance and diversity: over 60 total investments; no single investment more than 11% of Holdings assets TOTAL ASSETS $6.2 B 12/31/06 Chile & Peru Generation and Distribution 31% 6% Other International Generation 15% Domestic Generation 3% Other Resources Investments PSEG Global 45% Leveraged Leases PSEG Resources 23

25 Improved risk profile by opportunistically reducing capital invested in non-strategic assets Global s Invested Capital $2.6B Composition of Global s Pre-tax Equity-in-Earnings $296M Other US $900M $400M 34% 16% $2.0B $160M $500M 8% 24% $202M Other 28% $57 $20 $168 6% 57% $210M-$230M 45% 7% US $41 20% Chile & Peru $1.3B 50% $1.4B 68% Chile & Peru $104 51% $108 37% 48% G&A $(40) $(35) $(25) Est. while increasing returns and sharpening focus on G&A. 24

26 Holdings has provided meaningful earnings and cash flow $2.5 Sources & Uses of Cash from Debt Reduction & Dividends from $ Billions $2.0 $1.5 $1.0 $0.5 Cash Ops/ Cash on Hand Asset Sales Reduced Debt Return Capital/ Dividends Net Debt Reduction $311M - $609M Dividends & ROC $491M $412M $520M FFO/Interest 3.4x 2.5x 4.5x $0.0 Sources Uses Significant de-capitalization totaling $2.3B from Recourse Debt/Capital 47% 41% 36% which has supported debt reduction and return of capital to PSEG. 25

27 PSEG Energy Holdings 2007 Drivers $300 $227M $35M - $45M $200 $25M - $35M ($ millions) $10M - $20M $5M - $10M $130M to $145M $100 $ Operating Earnings* Texas FIN 48 Taxes Asset Sales 2007 Guidance *Excludes $178M Loss on Sale of RGE 26

28 Looking Forward Energy Holdings Global s Portfolio Allocation of Invested Capital Improved risk profile Chile - Investment Grade; Peru - approaching US Texas is merchant; others are contracted Stable earnings and cash distributions Continue opportunistic monetization of non-strategic assets Optimizes returns on Global s current portfolio Attractive market opportunities for Texas assets Continue to seek increased returns in Chile and Peru Other opportunities (eg. G&A) Monitors Resources lease portfolio Lessee credit risks exist, but has subsided Current weighted average rating: A-/A3 Adoption of FIN 48 decreases earnings Continue to monitor tax landscape 27

29 Looking Forward PSEG

30 We will focus on the basics of operational excellence... Operational Excellence Disciplined Investment Financial Strength to produce financial strength that will be deployed through disciplined investment. 29

31 Strong earnings and cash flows will be used to further de-lever the balance sheet. $6.00 FFO/ Total Debt Excess of 10% Growth 30% $ % EPS $4.00 EPS YE 06 EPS: $ % FFO/Total Debt $ % $2.00 YE 05 EPS: $ Actual 2006 Guidance 2007 Guidance 2008 Est. Improving our credit profile will enable us to maximize growth opportunities. 10% Guidance range: 06: $ $ : $ $

32 From a position of financial strength, we will make disciplined investments Near-term: Capitalize on opportunities for rate base growth Distribution, transmission, customer service Optimize our existing generation portfolio Environmental improvements at NJ coal stations Nuclear uprate Take a hard look at international assets Longer-term: Flexibility to pursue growth in core businesses and regions PSE&G integrating with NJ Energy Master Plan initiatives Advanced metering Renewables Demand side management Power well positioned for growth in attractive Northeast markets Strong and improving operations Site expansion capability Attractive cash flow Consider a range of strategic alternatives and capitalize on multiple alternatives to grow the generation and delivery business. 31

33 Creating Shareholder Value $ Year Cumulative Total Comparative Returns (as of December 31, 2006) $ Investment Value $ $ $ $ PSEG S&P 500 DJ Utilities S&P Electrics Focused on producing superior shareholder return 32